Lawmakers Confront the IRS Over Tax Audits That Target the Poor
Over the past six months, ProPublica
has detailed the myriad ways the IRS has been gutted and
how that has impacted its ability to do its job. In sum: The wealthy escape
scrutiny while the working poor, an easier target, are audited at high rates.
This week, Congress, in two separate
hearings, confronted IRS Commissioner Charles Rettig with the findings.
“How can the Congress stand by a
tax-enforcement system that punishes working people and gives the wealthy a
green light to cheat?” asked Sen. Ron Wyden, D-Ore., ranking member of the Senate
Finance Committee, during his opening statement on Wednesday.
Wyden was referring to a ProPublica
investigation last week into the fate of the elite unit the IRS formed to keep up with the
complicated tax-avoidance schemes of the wealthy. Faced with staff
cuts and blowback from the wealthy and their tax representatives, the effort
fumbled and was scaled way back.
Wyden demanded that Rettig produce a
plan within 30 days on how his agency will change a system that is “stacked in
favor of the wealthy” and “against the most vulnerable.” Rettig promised to do
so.
One day earlier, at a hearing before the House Appropriations Committee, Rettig was also questioned about a map showing where in the country IRS audits are most concentrated. The top five most audited counties, ProPublica found, were rural, mostly African American ones in the Deep South. (On Wednesday, Wyden called the map “shameful.”)
Rep. Charlie Crist, D-Fla., displayed the map during the
hearing and asked: “The map looks like the IRS is targeting black, Hispanic and
Native American populations for audit. Is that the case?”
Rettig said that it wasn’t, adding
that the IRS did not screen for race when selecting returns for audit.
But Crist said the findings amounted
to “disparate impact,” the idea that even if unintentional, systems can produce
“racial discrimination in practice.” He asked how the IRS would avoid “implicit
or explicit” bias going forward.
Rettig didn’t have a clear answer.
The IRS audited such a large number of low-income families because they claimed
the earned income tax credit, he said. The EITC is one of the country’s largest
anti-poverty programs.
But the IRS estimates that of the more than $70 billion paid out last year through the program, $18 billion was claimed improperly, Rettig said. This made the program a priority for the IRS to audit, he said. As previous IRS commissioners have done, he blamed the complexity of the law as the main cause of those incorrect claims.
But the IRS estimates that of the more than $70 billion paid out last year through the program, $18 billion was claimed improperly, Rettig said. This made the program a priority for the IRS to audit, he said. As previous IRS commissioners have done, he blamed the complexity of the law as the main cause of those incorrect claims.
While that $18 billion figure sounds
impressive, experts within and outside the IRS have argued that the agency’s estimate is far too high,
largely because low-income taxpayers are much less likely to have competent
representation to dispute the IRS’ conclusions.
The $18 billion is also just a
pittance when compared with the vast universe of unpaid taxes. The IRS produces
an estimate of what it calls the “tax gap,” which is how much tax is actually
paid compared with what should have been paid.
It’s been a few years since the last estimate, but assuming the rate of compliance has not changed (if anything, it’s gotten worse), the tax gap in 2018 would have been between $600 billion and $700 billion. At most, incorrect EITC payments account for around 3% of that.
It’s been a few years since the last estimate, but assuming the rate of compliance has not changed (if anything, it’s gotten worse), the tax gap in 2018 would have been between $600 billion and $700 billion. At most, incorrect EITC payments account for around 3% of that.
By comparison, in 2017, the last
year for which data is available, audits of EITC recipients accounted for 36%
of all audits.
Since the 1990s, Republicans have
put pressure on the IRS to address incorrect EITC payments, and Republican
senators in Wednesday’s hearing continued that pressure.
“This is a big problem,” said Sen. Pat Toomey, of Pennsylvania, referring to improper
EITC payments. “This is where the money is,” said Sen. Bill Cassidy, who represents one of the most heavily audited states, Louisiana.
Rettig expressed a willingness to
work with Congress to address incorrect payments of the EITC, perhaps by
simplifying the requirements. He notably did not suggest that the IRS might
scale back the number of audits.
As ProPublica reported last year, the IRS is understaffed, so people who are audited for claiming the credit and send in documents supporting their claim often must wait a year to find out if their proof is accepted.
As ProPublica reported last year, the IRS is understaffed, so people who are audited for claiming the credit and send in documents supporting their claim often must wait a year to find out if their proof is accepted.
When it comes to auditing the
wealthy, Rettig did say that one of his “focal points” was “to get the audit
rates up for the more wealthy taxpayers.”
“I’m an enforcement person,” he
assured lawmakers on Tuesday after they expressed concern about how far the audit rate has fallen. “I’m an
enforcement-minded person. … Personally, I have both eyes focused on
enforcement.”